BILL NUMBER: AB 1774	CHAPTERED  07/10/00

	CHAPTER   104
	FILED WITH SECRETARY OF STATE   JULY 10, 2000
	APPROVED BY GOVERNOR   JULY 7, 2000
	PASSED THE ASSEMBLY   JUNE 22, 2000
	PASSED THE SENATE   JUNE 15, 2000
	AMENDED IN SENATE   JUNE 15, 2000
	AMENDED IN SENATE   JUNE 12, 2000
	AMENDED IN ASSEMBLY   FEBRUARY 23, 2000

INTRODUCED BY   Assembly Member Lempert
   (Coauthors:  Assembly Members Alquist, Battin, Calderon, Cardoza,
Correa, Cox, Cunneen, Davis, Dickerson, Dutra, Granlund, Hertzberg,
Honda, Jackson, Longville, Lowenthal, Machado, Mazzoni, Nakano,
Olberg, Robert Pacheco, Rod Pacheco, Pescetti, Romero, Scott,
Shelley, Torlakson, Villaraigosa, Vincent, Washington, Wildman, and
Zettel)
   (Coauthors:  Senators Alarcon, Alpert, Bowen, Chesbro, Dunn,
McPherson, Murray, Rainey, Sher, and Soto)

                        JANUARY 20, 2000

   An act to amend Sections 17276 and 24416 of the Revenue and
Taxation Code, relating to taxation, to take effect immediately, tax
levy.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1774, Lempert.  Personal income and bank and corporation taxes:
  deductions:  net operating losses.
   The Personal Income Tax Law and the Bank and Corporation Tax Law
authorize a net operating loss deduction against the taxes imposed by
those laws that generally permits those losses to be carried forward
5 taxable or income years, as specified, but provides that 50% of
the entire amount of the net operating loss for any taxable or income
year is not eligible for carryover to any subsequent taxable or
income year, except as specified.
   This bill would for each taxable or income year beginning on or
after January 1, 2000, and before January 1, 2002, allow 55% of the
entire amount of net operating loss to be carried forward, and for
each taxable or income year beginning on or after January 1, 2002,
would allow 60% of the entire amount of net operating loss to be
carried forward.  This bill would also provide that a net operating
loss attributable to any taxable or income year beginning on or after
January 1, 2000, shall be a net operating loss to each of the 10
taxable or income years following the taxable or income year of the
loss.
   This bill would take effect immediately as a tax levy.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 17276 of the Revenue and Taxation Code is
amended to read:
   17276.  Except as provided in Sections 17276.1, 17276.2, 17276.4,
17276.5, and 17276.6, the deduction provided by Section 172 of the
Internal Revenue Code, relating to a net operating loss deduction,
shall be modified as follows:
   (a) (1) Net operating losses attributable to taxable years
beginning before January 1, 1987, shall not be allowed.
   (2) A net operating loss shall not be carried forward to any
taxable year beginning before January 1, 1987.
   (b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any taxable year shall be eligible for carryover to any
subsequent taxable year.  For purposes of this subdivision, the
applicable percentage shall be:
   (A) Fifty percent for any taxable year beginning before January 1,
2000.
   (B) Fifty-five percent for any taxable year beginning on or after
January 1, 2000, and before January 1, 2002.
   (C) Sixty percent for any taxable year beginning on or after
January 1, 2002.
   (2) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
a new business during that taxable year, each of the following shall
apply to each loss incurred during the first three taxable years of
operating the new business:
   (A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (d).
   (B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
   (i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (d).
   (ii) With respect to the portion of the net operating loss which
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(d).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (3) In the case of a taxpayer who has a net operating loss in any
taxable year beginning on or after January 1, 1994, and who operates
an eligible small business during that taxable year, each of the
following shall apply:
   (A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the taxable years
specified in subdivision (d).
   (B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
   (i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as specified in subdivision (d).
   (ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (d).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (4) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
a business that qualifies as both a new business and an eligible
small business under this section, that business shall be treated as
a new business for the first three taxable years of the new business.

   (5) In the case of a taxpayer who has a net operating loss in a
taxable year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of that paragraph,
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
   (6) For purposes of this section, the term "net loss" means the
amount of net loss after application of Sections 465 and 469 of the
Internal Revenue Code.
   (c) Net operating loss carrybacks shall not be allowed.
   (d) (1) (A) For a net operating loss for any taxable year
beginning on or after January 1, 1987, and before January 1, 2000,
Section 172(b)(1)(A)(ii) of the Internal Revenue Code, relating to
years to which net operating losses may be carried, is modified to
substitute "five taxable years" in lieu of "20 taxable years," except
as otherwise provided in paragraphs (2) and (3).
   (B) For a net operating loss for any taxable year beginning on or
after January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal
Revenue Code, relating to years to which net operating losses may be
carried, is modified to substitute "10 taxable years" in lieu of "20
taxable years."
   (2) For any taxable year beginning before January 1, 2000, in the
case of a "new business," the "five taxable years" in paragraph (1)
shall be modified to read as follows:
   (A) "Eight taxable years" for a net operating loss attributable to
the first taxable year of that new business.
   (B) "Seven taxable years" for a net operating loss attributable to
the second taxable year of that new business.
   (C) "Six taxable years" for a net operating loss attributable to
the third taxable year of that new business.
   (3) For any carryover of a net operating loss for which a
deduction is denied by Section 17276.3, the carryover period
specified in this subdivision shall be extended as follows:
   (A) By one year for a net operating loss attributable to taxable
years beginning in 1991.
   (B) By two years for a net operating loss attributable to taxable
years beginning prior to January 1, 1991.
   (4) The net operating loss attributable to taxable years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 taxable years
following the year of the loss if it is incurred by a taxpayer that
is under the jurisdiction of the court in a Title 11 or similar case
at any time during the income year.  The loss carryover provided in
the preceding sentence shall not apply to any loss incurred after the
date the taxpayer is no longer under the jurisdiction of the court
in a Title 11 or similar case.
   (e) For purposes of this section:
   (1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the taxable year.
   (2) Except as provided in subdivision (f), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
   (3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
   (4) In the case of any trade or business activity conducted by a
partnership or S corporation, paragraphs (1) and (2) shall be applied
to the partnership or S corporation.
   (f) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
   (1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person).
For purposes of this paragraph only, the following rules shall apply:

   (A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first taxable year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
   (B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
   (2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
   (3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
   (4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
   (5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
   (6) "Acquire" shall include any gift, inheritance, transfer
incident to divorce, or any other transfer, whether or not for
consideration.
   (7) (A) For taxable years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
   (B) For purposes of this paragraph:
   (i) "Biopharmaceutical activities" means those activities which
use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics.  Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to pharmaceutical
activities which make use of chemical compounds to produce commercial
products.
   (ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (g) In computing the modifications under Section 172(d)(2) of the
Internal Revenue Code, relating to capital gains and losses of
taxpayers other than corporations, the exclusion provided by Section
18152.5 shall not be allowed.
   (h) Notwithstanding any provisions of this section, a deduction
shall be allowed to a "qualified taxpayer" as provided in Sections
17276.1, 17276.2, 17276.4, 17276.5, and 17276.6.
   (i) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
   (j) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
   (k) Except as otherwise provided, the amendments made by the act
adding this subdivision shall apply to net operating losses for
taxable years beginning on or after January 1, 2000.
  SEC. 2.  Section 24416 of the Revenue and Taxation Code is amended
to read:
   24416.  Except as provided in Section 24416.1, 24416.2, 24416.4,
24416.5, or 24416.6, a net operating loss deduction shall be allowed
in computing net income under Section 24341 and shall be determined
in accordance with Section 172 of the Internal Revenue Code, except
as otherwise provided.
   (a) (1) Net operating losses attributable to income years
beginning before January 1, 1987, shall not be allowed.
   (2) A net operating loss shall not be carried forward to any
income year beginning before January 1, 1987.
   (b) (1) Except as provided in paragraphs (2) and (3), the
provisions of Section 172(b)(2) of the Internal Revenue Code,
relating to the amount of carryovers, shall be modified so that the
applicable percentage of the entire amount of the net operating loss
for any income year shall be eligible for carryover to any subsequent
income year.  For purposes of this subdivision, the applicable
percentage shall be:
   (A) Fifty percent for any income year beginning before January 1,
2000.
   (B) Fifty-five percent for any income year beginning on or after
January 1, 2000, and before January 1, 2002.
   (C) Sixty percent for any income year beginning on or after
January 1, 2002.
   (2) In the case of a taxpayer who has a net operating loss in any
income year beginning on or after January 1, 1994, and who operates a
new business during that income year, each of the following shall
apply to each loss incurred during the first three income years of
operating the new business:
   (A) If the net operating loss is equal to or less than the net
loss from the new business, 100 percent of the net operating loss
shall be carried forward as provided in subdivision (e).
   (B) If the net operating loss is greater than the net loss from
the new business, the net operating loss shall be carried over as
follows:
   (i) With respect to an amount equal to the net loss from the new
business, 100 percent of that amount shall be carried forward as
provided in subdivision (e).
   (ii) With respect to the portion of the net operating loss that
exceeds the net loss from the new business, the applicable percentage
of that amount shall be carried forward as provided in subdivision
(e).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (3) In the case of a taxpayer who has a net operating loss in any
income year beginning on or after January 1, 1994, and who operates
an eligible small business during that income year, each of the
following shall apply:
   (A) If the net operating loss is equal to or less than the net
loss from the eligible small business, 100 percent of the net
operating loss shall be carried forward to the income years specified
in subdivision (e).
   (B) If the net operating loss is greater than the net loss from
the eligible small business, the net operating loss shall be carried
over as follows:
   (i) With respect to an amount equal to the net loss from the
eligible small business, 100 percent of that amount shall be carried
forward as specified in subdivision (e).
   (ii) With respect to that portion of the net operating loss that
exceeds the net loss from the eligible small business, the applicable
percentage of that amount shall be carried forward as provided in
subdivision (e).
   (C) For purposes of Section 172(b)(2) of the Internal Revenue
Code, the amount described in clause (ii) of subparagraph (B) shall
be absorbed before the amount described in clause (i) of subparagraph
(B).
   (4) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates a
business that qualifies as both a new business and an eligible small
business under this section, that business shall be treated as a new
business for the first three income years of the new business.
   (5) In the case of a taxpayer who has a net operating loss in an
income year beginning on or after January 1, 1994, and who operates
more than one business, and more than one of those businesses
qualifies as either a new business or an eligible small business
under this section, paragraph (2) shall be applied first, except that
if there is any remaining portion of the net operating loss after
application of clause (i) of subparagraph (B) of paragraph (2),
paragraph (3) shall be applied to the remaining portion of the net
operating loss as though that remaining portion of the net operating
loss constituted the entire net operating loss.
   (6) For purposes of this section, "net loss" means the amount of
net loss after application of Sections 465 and 469 of the Internal
Revenue Code.
   (c) For any income year in which the taxpayer has in effect a
water's-edge election under Section 25110, the deduction of a net
operating loss carryover shall be denied to the extent that the net
operating loss carryover was determined by taking into account the
income and factors of an affiliated corporation in a combined report
whose income and apportionment factors would not have been taken into
account if a water's-edge election under Section 25110 had been in
effect for the income year in which the loss was incurred.
   (d) Net operating loss carrybacks shall not be allowed.
   (e) (1) (A) For a net operating loss for any income year beginning
on or after January 1, 1987, and before January 1, 2000, Section 172
(b)(1)(A)(ii) of the Internal Revenue Code, relating to years to
which net operating losses may be carried, is modified to substitute
"five income years" in lieu of "20 taxable years," except as
otherwise provided in paragraphs (2), (3), and (4).
   (B) For a net operating loss for any income year beginning on or
after January 1, 2000, Section 172(b)(1)(A)(ii) of the Internal
Revenue Code, relating to years to which net operating losses may be
carried, is modified to substitute "10 income years" in lieu of "20
taxable years."
   (2) For any income year beginning before January 1, 2000, in the
case of a "new business," the "five income years" referred to in
paragraph (1) shall be modified to read as follows:
   (A) "Eight income years" for a net operating loss attributable to
the first income year of that new business.
   (B) "Seven income years" for a net operating loss attributable to
the second income year of that new business.
   (C) "Six income years" for a net operating loss attributable to
the third income year of that new business.
   (3) For any carryover of a net operating loss for which a
deduction is denied by Section 24416.3, the carryover period
specified in this subdivision shall be extended as follows:
   (A) By one year for a net operating loss attributable to income
years beginning in 1991.
   (B) By two years for a net operating loss attributable to income
years beginning prior to January 1, 1991.
   (4) The net operating loss attributable to income years beginning
on or after January 1, 1987, and before January 1, 1994, shall be a
net operating loss carryover to each of the 10 income years following
the year of the loss if it is incurred by a corporation that was
either of the following:
   (A) Under the jurisdiction of the court in a Title 11 or similar
case at any time prior to January 1, 1994.  The loss carryover
provided in the preceding sentence shall not apply to any loss
incurred in an income year after the income year during which the
corporation is no longer under the jurisdiction of the court in a
Title 11 or similar case.
   (B) In receipt of assets acquired in a transaction that qualifies
as a tax-free reorganization under Section 368(a)(1)(G) of the
Internal Revenue Code.
   (f) For purposes of this section:
   (1) "Eligible small business" means any trade or business that has
gross receipts, less returns and allowances, of less than one
million dollars ($1,000,000) during the income year.
   (2) Except as provided in subdivision (g), "new business" means
any trade or business activity that is first commenced in this state
on or after January 1, 1994.
   (3) "Title 11 or similar case" shall have the same meaning as in
Section 368(a)(3) of the Internal Revenue Code.
   (4) In the case of any trade or business activity conducted by a
partnership or an S corporation, paragraphs (1) and (2) shall be
applied to the partnership or S corporation.
   (g) For purposes of this section, in determining whether a trade
or business activity qualifies as a new business under paragraph (2)
of subdivision (e), the following rules shall apply:
   (1) In any case where a taxpayer purchases or otherwise acquires
all or any portion of the assets of an existing trade or business
(irrespective of the form of entity) that is doing business in this
state (within the meaning of Section 23101), the trade or business
thereafter conducted by the taxpayer (or any related person) shall
not be treated as a new business if the aggregate fair market value
of the acquired assets (including real, personal, tangible, and
intangible property) used by the taxpayer (or any related person) in
the conduct of its trade or business exceeds 20 percent of the
aggregate fair market value of the total assets of the trade or
business being conducted by the taxpayer (or any related person).
For purposes of this paragraph only, the following rules shall apply:

   (A) The determination of the relative fair market values of the
acquired assets and the total assets shall be made as of the last day
of the first income year in which the taxpayer (or any related
person) first uses any of the acquired trade or business assets in
its business activity.
   (B) Any acquired assets that constituted property described in
Section 1221(1) of the Internal Revenue Code in the hands of the
transferor shall not be treated as assets acquired from an existing
trade or business, unless those assets also constitute property
described in Section 1221(1) of the Internal Revenue Code in the
hands of the acquiring taxpayer (or related person).
   (2) In any case where a taxpayer (or any related person) is
engaged in one or more trade or business activities in this state, or
has been engaged in one or more trade or business activities in this
state within the preceding 36 months ("prior trade or business
activity"), and thereafter commences an additional trade or business
activity in this state, the additional trade or business activity
shall only be treated as a new business if the additional trade or
business activity is classified under a different division of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition, than are
any of the taxpayer's (or any related person's) current or prior
trade or business activities.
   (3) In any case where a taxpayer, including all related persons,
is engaged in trade or business activities wholly outside of this
state and the taxpayer first commences doing business in this state
(within the meaning of Section 23101) after December 31, 1993 (other
than by purchase or other acquisition described in paragraph (1)),
the trade or business activity shall be treated as a new business
under paragraph (2) of subdivision (e).
   (4) In any case where the legal form under which a trade or
business activity is being conducted is changed, the change in form
shall be disregarded and the determination of whether the trade or
business activity is a new business shall be made by treating the
taxpayer as having purchased or otherwise acquired all or any portion
of the assets of an existing trade or business under the rules of
paragraph (1) of this subdivision.
   (5) "Related person" shall mean any person that is related to the
taxpayer under either Section 267 or 318 of the Internal Revenue
Code.
   (6) "Acquire" shall include any transfer, whether or not for
consideration.
   (7) (A) For income years beginning on or after January 1, 1997,
the term "new business" shall include any taxpayer that is engaged in
biopharmaceutical activities or other biotechnology activities that
are described in Codes 2833 to 2836, inclusive, of the Standard
Industrial Classification (SIC) Manual published by the United States
Office of Management and Budget, 1987 edition, and as further
amended, and that has not received regulatory approval for any
product from the United States Food and Drug Administration.
   (B) For purposes of this paragraph:
   (i) "Biopharmaceutical activities" means those activities which
use organisms or materials derived from organisms, and their
cellular, subcellular, or molecular components, in order to provide
pharmaceutical products for human or animal therapeutics and
diagnostics.  Biopharmaceutical activities make use of living
organisms to make commercial products, as opposed to
                                 pharmaceutical activities which make
use of chemical compounds to produce commercial products.
   (ii) "Other biotechnology activities" means activities consisting
of the application of recombinant DNA technology to produce
commercial products, as well as activities regarding pharmaceutical
delivery systems designed to provide a measure of control over the
rate, duration, and site of pharmaceutical delivery.
   (h) For purposes of corporations whose net income is determined
under Chapter 17 (commencing with Section 25101), Section 25108 shall
apply to each of the following:
   (1) The amount of net operating loss incurred in any income year
which may be carried forward to another income year.
   (2) The amount of any loss carry forward which may be deducted in
any income year.
   (i) The provisions of Section 172(b)(1)(D) of the Internal Revenue
Code, relating to bad debt losses of commercial banks, shall not be
applicable.
   (j) The Franchise Tax Board may prescribe appropriate regulations
to carry out the purposes of this section, including any regulations
necessary to prevent the avoidance of the purposes of this section
through splitups, shell corporations, partnerships, tiered ownership
structures, or otherwise.
   (k) The Franchise Tax Board may reclassify any net operating loss
carryover determined under either paragraph (2) or (3) of subdivision
(b) as a net operating loss carryover under paragraph (1) of
subdivision (b) upon a showing that the reclassification is necessary
to prevent evasion of the purposes of this section.
   (l) Except as otherwise provided, the amendments made by the act
adding this subdivision shall apply to net operating losses for
income years beginning on or after January 1, 2000.
  SEC. 3.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
